Marshall W. Meyer and Changqi Wu explore available Chinese data and recent experience to delve deeply into the question of mixed ownership.

September 18, 2014 — By Marshall W. Meyer, Changqi Wu

At the Third Plenum of the 18th Chinese Communist Party (CCP) Central Committee in November 2013, China’s leaders strongly endorsed the concept of a mixed ownership economy, which the Plenum’s sixty point Decision document defined as “cross holding by, and mutual fusion between, state-owned capital, collective capital, and non-public capital.” China’s leaders hope that mixed ownership can augment the role of state-owned capital by “maintaining and increasing its value and raising competitiveness.”

But in their paper, Meyer and Wu reach a different conclusion. Their analysis of Chinese data suggests that mixed ownership—the joining of non-state and state assets—may yield disappointing results and may not align with top leaders’ articulated objectives. That is because ownership and control do not always correspond in China. And this, in turn, means that the effects of ownership reform may be limited unless the state is willing to cede substantial control of mixed ownership enterprises to private investors.

Meyer and Wu argue that a further problem with the government’s emphasis on mixed, rather than private, ownership is that partial privatization of state-owned enterprises (SOEs) may have unanticipated consequences. The intent of these policies is to bring market discipline to SOEs, thereby improving their overall performance. But perversely, the actual effect may instead be to transfer the best state assets to private owners, resulting in the appearance but not the substance of better performance.

This new Paulson Policy Memorandum concludes that performance improvements will not automatically follow from private investment in state-controlled firms. Ultimately, performance improvements may require changes not contemplated by the Third Plenum. Put as bluntly as possible: the prospects for a mixed ownership economy will ultimately depend on the state’s willingness to cede control—not just ownership—of some of the nation’s largest enterprises to private interests.

ABOUT THE AUTHORS

Marshall W. Meyer

Tsai Wan-Tsai Professor Emeritus, The Wharton School; Faculty Member of the Center for the Study of Contemporary China, University of Pennsylvania

Marshall W. Meyer is the Tsai Wan-Tsai Professor Emeritus in the Wharton School and a Faculty Member of the Center for the Study of Contemporary China at the University of Pennsylvania, where he was previously the Richard A. Sapp Professor of Management, Professor of Sociology, and Associate Member of the Center for East Asian Studies. He has been a visiting professor at the Yale School of Management, the Faculty of Business Administration of the Chinese University of Hong Kong, the School of Economics and Management of Tsinghua University, and the School of Business and Management of the Hong Kong University of Science and Technology. Meyer was also a Visiting Scholar at the Russell Sage Foundation in 1993-94.

Changqi Wu

Professor of Strategic Management, Guanghua School of Management, Peking University

Changqi Wu is Professor of Strategic Management at the Guanghua School of Management, Peking University, and Director of the Guanghua Leadership Institute. His expertise covers state-owned enterprise reform, international joint ventures, and China’s anti-monopoly law. He sits on the boards of several Chinese companies including the Qingdao Haier Company, Ltd.